What Android Must Do

"I think for the Google platform to really be a game-changer it's going to have to offer more than just an open-source operating system for a mobile phone," says Kay Johansson, MobiTV CEO. "It will have to create mobile Internet devices that happen to make phone calls."

If Google ever does decide to bid for 700 MHz spectrum, with or without other partners, the network will be shaped by that same requirement. In fact, Google might have an opportunity to consider a different approach to what a mobile network looks like. Such a network theoretically might provide broadband coverage anyplace people are walking, spottier coverage in other places. That was the original thinking behind the "Personal Communications Service" (PCS) spectrum that instead wound up being deployed as 2-GHz cellular instead.

That might wind up being what happens again. Today, it is the troubled muni Wi-Fi approach that most resembles the old PCS idea. The Fon, T-Mobile Hotspot or Boingo hotspot approach offers less coverage than the original PCS concept called for.

In fact, the only reason one would logically want to build a new network on anything other than macrocells, incorporating Wi-Fi in some way, is that it might be possible to get a network up and running faster than if a traditional macrocell approach is used. One already would begin with fairly ubiquitous coverage in homes and offices and a reasonable hotspot overlay. Macrocell coverage probably still would be needed for outdoor coverage.

Still, an ad-driven business model ultimately could be quite do-able if one generally assumed in-home and at-office coverage, with fairly dense coverage in downtown cores and shopping malls, augmented by lighter coverage other places. There are some drawbacks, especially when the device is used in phone mode, since coverage would tend to be the reverse of what they now encounter. That is to say, indoor coverage would be better than outdoor coverage.

The point is that if the exercise is to build an optimal mobile Web network, one might have different choices. One of the bigger advantages would come from crafting a network that could be built at far-less capital intensity than a typical 3G mobile network. That would fit with the general theme of creating less-expensive handsets and service as well, so ads would produce a healthy revenue model. It's just a thought.

New Direction for Google, Sprint, Clearwire?

The only clear and unambiguous statement one can make about Google's mobile aspirations is that mobile advertising is key to Google's future growth. Everything else is open to discussion. And even as speculation remains about Google's possible interest in owning 700 MHz spectrum or even designing its own mobile devices, new possibilities continue to arise.

Under pressure for failing to protect the business it has got, Sprint executives are likely to consider some alternative future for the WiMAX network it has been touting as its fourth-generation network. Finding some way to monetize and offload the asset are among the obvious options. Merging the WiMAX assets with Clearwire is one option, though doing so without monetizing the restructured asset won't help Sprint very much, if the attempt is to lighten the capital spending and management attention burdens.

Sprint could do so if it spun off the WiMAX network in some way. And that's where Google has yet another option. The problem with owning 700 MHz spectrum is that service can't be provided until the network is built, requiring more cash and more time. Google might not want to wait.

The WiMAX network will be commercially viable long before any 700 MHz network will. So add more more wrinkle to the "what will Google do in mobile" speculation.

At this point it also seems safe enough to assume that some sort of reference design and operating system are under development, even if Google does not itself roll out its own phone. Separately, Google also is maneuvering to get prominent play for its mobile-optimized applications on existing devices and networks. And none of the tactics and strategies are mutually exclusive. Google might do some or parts of all of them.

First 700 MHz Winner: AT&T

at&t is the first winner of the battle to win 700 MHz wireless spectrum. Not, of course, because it has won anything in the upcoming auctions for C block and other spectrum. Instead, at&t is acquiring $2.5 billion worth of wireless spectrum licenses covering 196 million people in the 700 MHz frequency from Aloha Partners.

The 12 MHz of spectrum covers all of the top-10 U.S, wireless market and 72 of the top 100 markets overall.

"Steve Jobs Was Right"

"Steve Jobs was right," says at&t VP Ralph de la Vega. Right about slashing the price of the iPhone sooner than att&t would typically have done. AT&T Inc., owner of the biggest U.S. mobile phone service, said the increase in sales of the iPhone has been "significant" since maker Apple Inc. cut the price by a third. How much?

at&t appears also to have been at least partly right about the iPhone's impact. Sprint and Verizon executives both acknowdledge at least a temporary increase in churn immediately after iPhone hit the market, and again after the recent price reduction.

Perhaps of more lasting significance is the ability of iPhone users to use Wi-Fi for connectivity in place of the EDGE network. Though it is doubtful many users will settle for a single "do everything device" that primarily connects only when within range of Wi-Fi networks, it will be interesting to watch whether there is a developing market for devices used primarily as media players.

The reason is simply that if the primary use mode is media, not voice, users might be able to live with sideloading and "spot" access of connectivity at home, at work and at public hotspots. And if there is a market for that, there could be a market for other Web-based devices that have value even when they are not "always connected."

That in turn is significant because it could offer some new options for providers of services and devices optimized for Web applications rather than voice. The analogy is notebook computers, that are highly useful even though they are not always connected. It might be possible to create significant new business models for devices that are "mobile" but not "always connected."

That, in turn, is highly significant for application or service providers that do not want to depend on the legacy mobile connectivity providers for access and transport.

Google Phone Again?

Speculation about Google getting into the mobile phone space have been circulating all year. Most recently, the Wall Street Journal reported that Google has "invested hundreds of millions" into cellular phone development, and that the project goes far and beyond current incarnations of Google products on today's mobile handsets. So what is Google up to?

It isn't necessarily that complicated. Google might be simply be trying to show existing and would-be device manufacturers what can be done. Google doesn't necessarily have to be thinking about becoming a device manufacturer or "service" provider.

Google already has moved to put Google Search, Gmail and Maps onto phones. Google might be trying to illustrate, concretely, what a device can do, and look like, if unencumbered by all sorts of walled garden software. Call it a Google-optimized mobile Web approach, if you like. An approach that offers opportunity to exploit advertising revenues. If Google can get serious traction, it not only creates an important beach head in the mobile ad space, but also helps create the mobile version of the broadband Internet.

Ad-supported communications are a possibility, but not the only possibility. The "open" whole Web framework plays to Google's strengths. That might be the more important objective.

Expect to see Google pushing hard not only to get its software on more clients but to get users accustomed to behaving the same way with the mobile Web as they now do with the tethered Web. After all, the whole point of targeted advertising is to reach people where they are.

Three times as many mobiles are in use as landlines, and landlines don't offer much upside in the advertising space.

700 MHz Rules: More Impact than Carterfone

Though some might really have preferred mandatory wholesale rules for a portion of the 700 MHz spectrum, the "Carterfone" style "any compliant device can be attached to the network" provision will have much more impact than did Carterfone. Carterfone lead to widespread use of modems on the public network, initially by business customers who did not have to "ask permission" to do so. Consumers initially could "buy and own" their own phones instead of renting them from the phone company.

We also might credit the rise of much of the Interconnect and business phone system business to Carterfone.

Then, because modems could be used, we can further say that Carterfone helped pave the way for creation of the Internet itself. First dial-up access, then broadband access, became possible because of Carterfone. Because of broadband the visual and now semantic Web developed. These are significant effects, indeed.

But the 700 MHz spectrum should ultimately have more impact. We assume the C block will be assembled into a national network. We assume a high-quality, low-latency core, with short access "tails," and full mobility across the whole network.

The near-term impact will be significant. Device manufacturers will benefit, since they simply have to build equipment that complies with the technical specs. Users will benefit since they can use any handsets they choose. But there will be more impact, fairly shortly.

Because the new network will be based on IP (as well as Ethernet), there will be ways to provide VoIP, even if network operators try to wall off all voice services in the traditional walled garden. Technological cleverness will take care of that problem.

That is going to create a potential new "offer leader" in wireless. And recall that AT&T's "Digital One Rate" completely reshaped industry-wide packaging and pricing, not simply some of AT&T's offerings. The C block network potentially lays the framework for a service provider with some scale to reshape consumer expectations of what things should cost and how they should be packaged.

More significantly, the C block network potentially allows a provider some latitude to redefine the customer experience as well, creating new expectations of what media "should" be available, how they should work together and what the "right" price is for such capabilities.

We can't really predict what other developments might occur. I don't think one would have extrapolated the creation of the World Wide Web or VoIP from Carterfone. I don't think it is yet possible to extrapolate from the wireless equivalent of Carterfone, either.

But this is a bigger deal than most people assume. It just will take a while before the wider ramifications are seen. And by the time it happens, nobody will remember a relatively "small" regulatory decision.

No Wholesale? No Surprise

To almost nobody's surprise, the 700 MHz auction will not have a mandatory wholesale provision. We might argue that a robust "third" or "fourth" or "fifth" pipe would result. What is harder to argue is that any such pipe provider would be able to make the investments required, operate its network at a high level of quality and still return the required returns to investors.

Other wireless infrastructure initiatives highlight the problem. After reporting a $16.3 million second-quarter loss last week, EarthLink reiterated that it was reassessing its municipal wireless business. Revenue is the issue.

"Until we're confident that we can build new networks and get an acceptable return, we will delay any further new buildouts," CEO Rolla Huff said.

EarthLink has been one of the biggest builders of city wireless networks, with projects built or in the works in 13 municipalities around the U.S., according to its Web site.

The problem with wholesale access business models is simply that it is so difficult to earn an adequate return. In a competitive market, a provider needs both significant penetration and reasonable margin (40 percent is a common threshold). Wholesale makes that tough.

Verizon Bends on Net Neutrality

Lowell McAdam, chief executive of Verizon Wireless, says the company would agree to 700 MHz spectrum auction rules requiring the network operator who wins a portion of the spectrum to allow any device onto its network.

Such a nod to the wireless equivalent of "Carterfone" suggests Verizon now believes some such requirement will be part of license rules for the 700 MHz frequencies. The compromise won't go far enough to satisfy contestants who think a mandatory wholesale regime is needed.

But the move would for the first time allow users to buy and use virtually any device of their choosing on the network. As much as wireless carriers might like to preserve their ability to lock all devices used on their networks, device independence would be quite helpful for end users, application developers and device manufacturers, since it would allow some degree of innovation without the direct cooperation of the network services provider.

Verizon draws the line at guarantees that all games, video and the Web applications on the new phones or devices will work on anything other than a best effort basis, in essence, however. Verizon also said it would reserve the right to continue blocking certain applications and features for phones it sells, if it were to operate networks under such rules.

at&t earlier had signaled that it wasn't going to stand in the way of such rules. Some people might not think half a loaf is worth having. But Carterphone was a very important advance, as this also would be. Verizon arguably would not be shifting its stance were it not convinced the move is inevitable in any case.

Perhaps Google Can't Lose in 700 MHz Auction

If Google succeeds in getting a mandatory wholesale access requirement for the C block of spectrum, it wins. Whether Google itself wins the spectrum (probably not) or not, somebody will, so Google and Google can lease spectrum directly, or work with somebody else who will lease spectrum on its behalf.

Even if it entirely fails to win a mandatory wholesale clause, Google is no worse off than it used to be, because existing provisions for the 700-MHz equivalent of "Carterfone" will still make it easier for Google and its ecosystem to create features, devices and applications optimized for mobility.

One fact seems certain: as hard as it is to build a "wholesale-only" national infrastructure play, if mandatory access conditions are attached to the C block of frequencies, the business case will be harder for owners of retail spectrum in the other two blocks. The pricing umbrella of course will be set by the C block providers.

Clearwire and Sprint will face some issues because the radio propagation characteristics of the 700 MHz spectrum are much better than those for the 2.5 GHz blocks Clearwire and Sprint will be using to build their national 4G network. Like the old UHF broadcast stations who used the 700 MHz frequencies, signals got through walls pretty easily, even to "rabbit ears" antennae. Digital propagation should be better, since today's signal processing chips can reconstruct a signal from weaker or more refracted signal sources.

In fact, he 700 MHz signals should provide the "best" "through the walls" performance of any wireless networks, period. The higher frequencies conceivably will offer higher raw bandwidth potential (for reasons related to the more rapid oscillations of the radio signals at higher frequencies).

And there remains the possibility that the auction rules might emerge in final form someplace between formal wholesale access for the C block and hard-to-enforce "Carterfone" principles. In any event, Google's odds of winning are higher than its odds of simply being no worse off than it currently is.

Open Network for 700 MHz?

It isn't clear whether the proposal will survive the inevitable challenges from established carriers who won't like the idea, but Federal Communications Commission Chairman Kevin Martin is said to be ready to propose an unusually "open" license for valuable 700 MHz spectrum being vacated by TV stations as they go digital.

Under Martin's proposal, mobile services in these airwaves would have to use of any compliant device and any application, with no restrictions, so long as the application is legal and doesn't harm the network.

As a platform for innovation, the new network would rival the Internet itself, moving far beyond "unlocked" phones and resembling nothing so much as a mobile version of the Internet, where any device can access any service.

Google would love it. So would most developers. So would Apple. A network of that sort basically obviates the walled garden approach the mobile industry has taken, and resembles the way any PC can access anybody or any application able to get onto the Internet.